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In part b)it says that the financial liability if measured at fair value will be 45m,but the liability taken was of 47 m(effective int was 5%).
Pls explain me how to measure a financial liability at fair value as i dont know how they came up with 45 fair value.
Thanks and regards
The argument here goes along the lines of “Given that both loans result in virtually the same payment being made on the same date in the future, then the fair value measurements should be the same. That means that the original loan of $47m is fair valued as at $45m
Now, that loan is one year old so should have a year’s worth of interest ($2.35m) rolled up into it.
In addition, because fair value is lower than the original cost, there is an unrealised gain of a further $2m. The net effect is to value the liability at $45m + $2.35m (interest) + $2m (unrealised gain)
OK?
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